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TMI Blog2019 (2) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... s becomes more or less illusory. Paragraph 4.13 is a provision which is specifically made for pre-import condition and provides for the categories of cases to which such condition has to be applied - even according to the respondents, there is a specific provision in the Foreign Trade Policy specifying inputs which are to be imported under pre-import condition, viz. paragraph 4.13. Therefore, if a condition of preimport has to be put in respect of any input, ideally such input should find place in paragraph 4.13 of the Foreign Trade Policy, which is not so in the present case. Due to the condition of pre-import contained in paragraph 4.14 and condition (xii) of the notification, though the inputs imported by the petitioners may not fall within the categories enumerated in paragraph 4.13 of the Foreign Trade Policy and are as such not subject to the pre-import condition, the same become subject to the condition of pre-import qua specific levies viz. integrated tax and GST compensation cess, which creates an anomalous situation, inasmuch as the import of the inputs against an Advance Authorisation is subject to several levies under section 3 of the Customs Tariff Act and in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of anything adverse, there was no necessity to change the scheme by subjecting the two levies referred to in sub-section (7) and sub-section (9) of section 3 of the Customs Tariff Act to the condition of pre-import. More so, when the Foreign Trade Policy has a separate paragraph 4.13 which provides for pre-import condition in respect of specific inputs, there is no rationale for placing a condition of pre-import qua any inputs than those specified under paragraph 4.13. As discussed hereinabove, though in paragraph 4.14 the condition of pre-import is not qua specific inputs, but for availing benefit of exemption from levy of integrated tax and GST compensation cess, in effect and substance, it operates as a condition for pre-import qua all the raw material imported under an Advance Authorisation. The Government has found it to be in public interest not to have a condition of pre-import for availing the benefit of exemption from integrated tax and GST compensation cess leviable on material imported against an Advance Authorisation, which vindicates the stand of the petitioners. Therefore, the condition of pre-import militates against the Advance Authorisation Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L CIVIL APPLICATION NO. 18097 of 2018 - - - Dated:- 4-2-2019 - MRS HARSHA DEVANI AND DR A. P. THAKER, JJ. SPECIAL CIVIL APPLICATION NO. 19324 of 2018 For The Petitioners : MR PARESH M DAVE, ADVOCATE with AMAL PARESH DAVE, ADVOCATE AND MR ADITYA TRIPATHI, ADVOCATE, MR ABHISHEK RASTOGI, ADVOCATE with MR PRATYUSHPRAVA SAHA, ADVOCATE with MR NACHIKET DAVE, ADVOCATE For The Respondents : MR NIRZAR S DESAI, SENIOR STANDING COUNSEL ORAL JUDGMENT ( PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Rule. Mr. Nirzar Desai, learned Senior Standing Counsel waives service of notice of rule on behalf of the respondents. 2. Since the facts and contentions raised in this batch of petitions are more or less similar, the same were taken up for hearing together and are decided by this common judgment. 3. For the sake of convenience, reference is made to the facts as appearing in Special Civil Application No.14558 of 2018 filed by Messrs Maxim Tubes Company Pvt. Ltd. 4. The petitioner is a manufacturing unit for manufacture of goods like Stainless Steel Seamless Welded Pipes, Tubes, UTubes and such products. The petitioner manufactures such goods and sells them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner has also been allowed to export goods in anticipation of application being granted so as not to create hindrances and delays in executing export orders. 4.4 It is further the case of the petitioner that the scheme of exports in anticipation of licence is an inevitable feature of the export trade, inasmuch as, normally, an exporter like the petitioner is allowed delivery time of three to four months by the overseas buyers, and such condition for delivery time is always laid down in the sales contract and/or purchase order executed between the parties. Upon receiving such export order, a manufacturer like the petitioner would immediately lodge an application for an Advance Authorisation for importing required materials duty free. Scrutiny and grant of such application ordinarily takes three to four weeks; and therefore, a manufacturer-exporter like the petitioner would get an Advance Authorisation about three to four weeks after receiving the export order. Thereupon, order for required raw materials could be placed to a suitable overseas supplier; and locating such suitable supplier, negotiating the price and other issues with such supplier and actual supply of the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. With the introduction of GST and such new levies from 1.7.2017, section 3 of the Customs Tariff Act has been amended, and integrated tax and Goods and Services Tax compensation cess (hereinafter referred to as GST compensation cess ) are levied and collected on any article imported into India by virtue of sub-sections (7) and (9) substituted in section 3 of the Customs Tariff Act with effect from 1.7.2017. 4.6 It is the case of the petitioner that for the goods imported against an Advance Authorisation, Notification No.18/2015- Cus., allowed exemption from various duties which were leviable till then; but the new levies of integrated tax and GST compensation cess were not referred to at paragraph 1 of the notification; and therefore the custom authorities all over the country started levying and collecting these new levies even for the goods imported into India against an Advance Authorisation. It appears that some of the aggrieved persons approached the Delhi High Court, challenging such recoveries of integrated tax and GST compensation cess on goods imported against Advance Authorisation, whereupon an interim order came to be made by the said court. 4.7 It is the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or such imports, and also the exports already made or to be made after importing such goods for verifying fulfillment of preimport condition. 4.10 It is the case of the petitioner that there is no definition or clarification about the meaning of pre-import condition ; but the DRI officers conducting the inquiry and investigation, hold a view that pre-import condition would mean that goods have to be imported first and then the final products manufactured from such imported goods have to be exported, and only when it was established that goods imported against a particular Authorisation were used in relation to manufacture of finished goods exported for fulfillment of Export Obligation of that particular Authorisation that the pre-import condition was satisfied, and accordingly, exemption was admissible to the goods imported against such Authorisation. In view of this belief or impression about the pre-import condition , it would mean that the exemption of Notification No.18/2015-Customs would not be admissible in case of manufacturer-exporters like the petitioner, who undertake manufacturing and export of goods in a continuous cycle, and it would also mean that the exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication issued by the Government. The question is whether the authority acted within their jurisdiction while issuing such notification or not. It is stated in the affidavit-in-reply that the exporters are at liberty to export first and import at a later stage in terms of paragraph 4.12 of the Hand Book of Procedures, Volume-I (presently covered by paragraphs 4.27 and 4.28 of the Hand Book of Procedures, Volume-I [2015-20]. However, the said provision does not offer carte blanche to the importer to regulate his imports and exports without complying with the other conditions imposed in the policy and the relevant customs notification. The said provision was made as an exception, to keep the option open for the willing exporters, subject to the condition that the same would be availed at the risk of the exporter only. An exporter is allowed to export in anticipation of Advance Authorisation in terms of paragraph 4.12 of the Hand Book of Procedures, Volume-I, only when either the norms are not fixed in the SION, or they are willing to fulfill their export obligation first. As the process of fixing norms takes considerable time, said provision leaves a window of opportunity for the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision, which could have been reversed or altered only by the statutory body called GST Council . 5.3 it is further the case of the fifth respondent in the affidavit-in-reply that because of the problem in GSTN, the committed refund of IGST was getting delayed, which resulted in blocking of working capital for many business houses. Considering the gravity of the situation, the GST Council came up with the idea of allowing exemption from IGST when imported under Advance Authorisations, and accordingly, the DGFT issued Notification No.33/2015-20 dated 13.10.2017 which was backed by Customs Notification No.79/2017 dated 13.10.2017, issued by the Department of Revenue, amending the parent Notification No.18/2015 dated 1.4.2015. 5.4 It is further averred in the reply that both, the DGFT as well as the Department of Revenue notifications, offered exemption from the integrated tax leviable under sub-section (7) of section 3. However, such exemption was not absolute. Two specific conditions were imposed, viz., (i) export obligation has to be fulfilled through physical exports only; (ii) the exemption is subject to pre-import condition, which implies that only after the import of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , does not mean that this was alien to the importers working under the scheme. 5.7 According to the respondents, the petitioner is under an incorrect impression that the Advance Authorisation scheme is a scheme for replenishment. Had it been so, DGFT would not have to launch other schemes like Duty Free Incentive Scheme, which allows exports prior to import and licences are made transferable under the Foreign Trade Policy. The preimport condition is in-built in the Advance Authorisation scheme. The importers are duty bound to utilize the duty free imported materials for the purpose of manufacture of export goods, which are subsequently exported. 5.8 It is further averred that pre-import condition means that the entire materials covered by the Advance Authorisation should invariably be imported first, either in entirety or in a phased manner, for use in the process of manufacture of the finished goods, which in turn would be exported, towards the said Advance Authorisation only. It is not necessary to import in totality, one is allowed to import in piecemeal, if need be. The only condition is that the very materials imported duty free under a specific Advance Authorisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the export goods, except for the item already imported, the importer utilized materials other than the duty free materials imported under the subject Advance Authorisation. The other input materials are imported subsequently, which do not go into production of the finished goods, exported under the said Advance Authorisation. Therefore, pre-import condition is violated. ( iv) In some cases, preliminary imports are made prior to export. Subsequent exports are made in a scale which is not commensurate with the imports already made. Scrutiny of particulars of export clearly establishes the fact that the quantum of exports made is much more than the corresponding imports made during that period, establishing the fact that materials used for manufacture of the export goods were procured otherwise. Rest of the imports are made later and corresponding exports are either nil or far less. It is evident that the imported materials have not been utilized in entirety for manufacture of the export goods, and therefore, pre-import condition is violated. 5.11 It is asserted that each and every importer had two options, either to continue paying IGST on the goods imported under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second respondent Principal Commissioner of Customs, more or less reiterating what has been stated in the affidavits-inreply filed by the other respondents. It has been stated that the pre-import condition is not a new term. Para 4.14 of the Foreign Trade Policy 2015-20 stipulates that imports under Advance Authorisation for physical exports are exempt from whole of the integrated tax and compensation cess leviable under sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, 1975 and such imports shall be subject to pre-import condition. The principal customs exemption Notification No.18/2015-Cus. dated 1.4.2015 has also explained situations of pre-import and post-export wherein conditions (iv) and (vi) refer to import made after the discharge of export obligation (i.e. post-exports). The aforesaid provisions of Foreign Trade Policy 2015-20 have been incorporated and given effect through Customs Notification No.79/2007-Cus. Dated 13.10.2017. Therefore, the condition of pre-import in respect of inputs to be incorporated in the export product under Advance Authorisation cannot be stated to be arbitrary. 8. Mr. Paresh Dave, learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging them to the factory would require about one week; then the production of finished goods upon utilization of such imported goods/materials would take about ten to fifteen days; and delivery of the goods to the overseas buyer would also take a few weeks depending upon the location of the buyer and availability of a sea going vessel after the goods are cleared from the manufacturer s factory; and thus a period of five to six months would be required if pre-import condition is followed for executing an export order. It was urged that it would be virtually impossible to honour the obligation and commitment of delivering goods within three to four months, which is the period of delivery normally agreed in international trade. 8.2 Mr. Dave submitted that moreover, there is no benefit that the Government derives out of such pre-import condition , inasmuch as if money is paid as taxes, it will be allowed by way of credit and ultimately have to be returned, but in the process, the funds get blocked. Therefore, such condition is ultra vires articles 14 and 19(1)(g) of the Constitution of India. 8.3 Reliance was placed upon the decision of the Supreme Court in the case of Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stead of excise duty, service tax, value added tax etc.) is wholly unjustified and irrational. It was contended that the impugned pre-import condition apparently does not have any relevance to the policy and purpose of the Advance Authorisation scheme, and therefore, imposition of such condition is a colourable exercise of powers by the Central Government. 8.4 The attention of the court was invited to Chapter 4 of the Handbook of Procedure, 2015-20 and more particularly to paragraph 4.27 thereof, to submit that exports in anticipation of authorisation are still allowed thereunder. It was submitted that the procedure laid down by way of Hand Book of Procedure for implementing the provisions of the Foreign Trade Act as well as the provisions of Foreign Trade Policy still allows a person to export goods in anticipation of Authorisation after lodging an application through the EDI system and obtaining a file number for an Advance Authorisation. However, this procedure is set at naught in view of the preimport condition now imposed vide paragraph 4.14 of the Foreign Trade Policy and clause (xii) of Notification No.18/2015-Cus. It was contended that the fact that the Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution of India, but it would also adversely affect the interest of the Union Government since there will no longer be any foreign exchange earnings. 8.7 It was submitted that since the manufacturer-exporters like the petitioners cannot comply with pre-import condition , the imports shall have to be made on payment of integrated tax as well as GST compensation cess and such other levies; and thereafter the manufacturer-exporters would have to avail ITC (Input Tax Credit) under the GST laws for utilizing such ITC for payment of GST and such levies for domestic transactions; and refund shall have to be claimed for such ITC if it could not be utilized for other transactions. Thus, in the ultimate analysis, the Union Government shall not earn any revenue; whereas manufacturer-exporters shall have to undergo the rigors of paying such levies at the time of import of the goods and then availing its credit or refund. But substantial funds of the manufacturer-exporters would remain blocked for a long time, and any procedural irregularity or infraction while claiming ITC or refund would result in a situation where such credit would remain unutilized with the manufacturerexporters. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree imports against such Authorisations. It was submitted that the petitioners and similarly situated manufacturer-exporters would not be in a position to avail exemption under Notification No.18/2015-Cus by importing any goods against pending Authorisations because exports have already been made in respect of such Authorisations and would, therefore, be gravely prejudiced. 8.10 Lastly, it was pointed out that subsequently by a notification dated 10th January, 2019 being Notification No.53/2015-20, the Government has found deletion of condition (xii) to be in public interest, and, therefore, now the controversy involved in the present case is limited to a period of about thirteen months only, between 13.10.2017 and 9.1.2019. It was submitted that the amendment is only curative though it has taken a longer time. 8.11 Reliance was placed upon the decision of this court in the case of Shree Renuka Sugars Ltd. v. Union of India , 2018 (360) ELT 483 (Guj.) , wherein the court referred to the decision of the Supreme Court in the case of W.P.I.L. Ltd. v. Commissioner of Central Excise, Merut, 2005 (181) E.L.T. 359 (SC) , wherein the court considered a case where exemption n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry authority while exercising its statutory power must show that the same had not only been done within the four corners thereof but otherwise fulfills the criteria laid down by the Supreme Court in P. J. Irani v. State of Madras, AIR 1961 SC 1731 . The court held that if by a notification, the Act itself stands effaced; the notification may be struck down. It was submitted that the entire Advance Authorisation scheme is effaced by virtue of the pre-import condition and therefore, such condition is required to be struck down. Reliance was placed upon the decision of the Supreme Court in the case of Laxmi Khandsari v. State of U.P. , (1981) 2 SCC 600 , wherein the court held that in imposing restrictions, the State must adopt an objective standard amounting to a social control by restricting the rights of the citizens where the necessities of the situation demand. When the validity of a law placing restriction upon the exercise of fundamental rights in article 19(1) is challenged, the onus of proving to the satisfaction of the court that the restriction is reasonable lies upon the State. It was submitted that this is not a case of first time exemption. Now that they seek to pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion ambiguous and vague and hence, the petitioners cannot be compelled to adhere to the same. It was submitted that the ambiguity of the manner in which pre-import condition has to be fulfilled is illustrated by the problems faced in the following scenarios: (a) Considering the business model run by the petitioners, all imports cannot be made at once. Import of raw material must be done in batches and depends on export order. It is unclear whether pre-import signifies that all imports under the licence should be made before any export of the finished goods. (b) Owing to the absence of a clear definition of preimport , the petitioners are unsure whether they have met pre-import obligation when one batch is imported under a particular Advance Authorisation licence before exports whereas the other batch is imported after meeting export obligation. It is also unclear whether this qualifies as a violation of pre-import condition for all transactions made under the licence. That further begs the question whether the fulfillment of the conditions should be looked at qua the transaction or qua the Advance Authorisation. (c) It is also unclear whether, in order to satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that when the levy of IGST on imported goods is given the same treatment as the levy of basic customs duty, there is no reason why the unconditional exemption of basic customs duty granted to licence holders under the Advance Authorisation Scheme cannot be extended to IGST exemption available for goods imported under the same scheme. It was submitted that this differential treatment in respect of IGST benefit as compared to basic customs duty exemption under the customs notification is not justified and fails the test of reasonable classification under article 14 of the Constitution of India. 9.4 Referring to conditions (iv), (v) and (vi) of the impugned notification, it was submitted that there is a direct conflict with the process specified under the said conditions and condition (xii) of the notification. It was submitted that condition (iv) lays down the process in case the imports have been made before the fulfillment of export obligation. There is no indication of any additional obligation that is required to be fulfilled other than execution of a bond. Similarly, in condition (v), the process to be followed in case where the imports follow the discharge of export o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equire to be allowed by granting the relief as prayed for therein. 10. Opposing the petitions, Mr. Nirzar Desai, learned Senior Standing Counsel for the respondents, at the outset, submitted that the conditions in the Foreign Trade Policy as well as in the exemption notification being in the nature of a fiscal policy, are not amenable to judicial review and hence, the petitions deserve to be dismissed on this ground alone. Reliance was placed upon the decision of the Supreme Court in the case of Indian Oil Corporation Ltd. v. Kerala State Road Transport Corporation , (2018) 12 SCC 518 , wherein the court held that the grant of subsidy is a matter of privilege, to be extended by the Government, it cannot be claimed as of right. No writ lies for extending or continuing the benefit of privilege in the form of concession. The court held that the decision of the Government of India not to extend subsidy to bulk consumers, could not be said to be an arbitrary decision, discriminatory or in violation of the principles contained in Article 14 of the Constitution of India and that, such policy decisions are not amenable to judicial review. The court placed reliance upon its earlier d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption from IGST was given through the impugned notification in order to prevent cash blockage of exporters due to upfront payment of IGST on import of inputs etc. In case of replenishment imports after exports, the issue of cash blockage does not arise. Since exports have already taken place and GST legislation provides for complete zero-rating, extending IGST exemption on replenishment imports would imply double benefit to the authorisation holder. It was submitted that IGST paid on replenishment material can be availed as input tax credit for payment of GST. 10.4 Reliance was placed upon the decision of the Supreme Court in the case of Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal , 2010 (260) ELT 3 (SC) , wherein the court held that the law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then existing CENVAT credit rules was a vested right. By virtue of clause (iv) of sub-section (3) of section 140 of the CGST Act, such right has been taken away with retrospective effect in relation to goods which were purchased prior to one year from the appointed day. The court held that this retrospectivity given to the provision has no rational or reasonable basis for imposition of the condition. The reasons cited in limiting the exercise of rights have no co-relation with the advent of GST regime. Same factors, parameters and considerations of in order to co-relate the goods or administrative convenience prevailed even under the Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods purchased prior to one year. The court held that the impugned provisions though did not make hostile discrimination between similarly situated persons, the same did impose a burden with retrospective effect without any justification. It was submitted that the above decision would be squarely applicable to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... physically incorporated in export product (making normal allowance for wastage). In addition, fuel, oil, catalyst which is consumed/ utilized in the process of production of export product, may also be allowed. ( b) Advance Authorisation is issued for inputs in relation to resultant product, on the following basis: ( i) As per Standard Input Output Norms (SION) notified (available in Hand Book of Procedures); OR ( ii) On the basis of self declaration as per paragraph 4.07 of Handbook of Procedures. 13.1 Some other relevant provisions of the Foreign Trade Policy insofar as the controversy involved in the present case, are paragraphs 4.13, 4.14 and 4.16, which, as they stood at the relevant time when Foreign Trade Policy 2015-2020 came to be introduced, read as under: 4.13 pre-import condition in certain cases ( i) DGFT may, by Notification, impose pre-import condition for inputs under this Chapter. ( ii) Import items subject to pre-import condition are listed in Appendix 4-J or will be as indicated in Standard Input Output Norms (SION). ( iii) Import of drugs from unregistered sources shall have pre-import condition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorisation Number to establish co-relation of exports/supplies with Authorisation issued. 13.4 Thus, this paragraph permits exports in anticipation of authorisation and permits exports towards discharge of export obligation on the basis of the file number even prior to Advance Authorisation being granted. This condition has not been modified and export in anticipation of authorisation is permitted. This policy still exists. 14. By virtue of Notification No.18/2015-Cus. dated 1.4.2015 issued in exercise of powers under sub-section (1) of section 25 of the Customs Act, 1962, materials imported into India against a valid Advance Authorisation were exempted from the whole of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 and from the whole of the additional duty, safeguard duty, transitional product specific safeguard duty and anti-dumping duty leviable thereon, respectively, under sections 3, 8B, 8C and 9A of the Customs Tariff Act. 15. When the Goods and Services Tax Acts came into force with effect from 1st July, 2017, there was no corresponding amendment in this notification. However, section 3 of the Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es) Cess Act, 2017 [GST compensation cess]. 17. However, since there was no corresponding notification exempting the additional duties leviable under sub-section (7) and sub-section (9) of section 3 of the Customs Tariff Act, the exporters were required to pay integrated tax and GST compensation cess and take input tax credit as applicable under GST Rules. However, import under Advance Authorisation continued to be exempt from payment of basic customs duty and additional customs duty specified in subsections (1), (3) and (5) of section 3 of the Customs Tariff Act, education cess, anti-dumping duty, safeguard duty and transition product specific safeguard duty, wherever applicable. 18. It appears that since integrated tax and GST compensation cess was levied even against Advance Authorisation, the same came to be challenged before the Delhi High Court in a number of petitions, wherein interim relief came to be granted. According to the respondents (as averred in the affidavits-in-reply), because of the problem of goods and services tax, the committed refund of IGST was getting delayed, which resulted in blocking of working capitals for many businesses. 19. Thereafter, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re exempted from payment of Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, Transition Product Specific Safeguard Duty, wherever applicable. Import against supplies covered under paragraph 7.02 (c), (d) and (g) of FTP will not be exempted from payment of applicable Anti-dumping Duty, Countervailing Duty, Safeguard Duty and Transition Product Specific Safeguard Duty, if any. However, imports under Advance Authorisation for physical exports are also exempt from whole of the integrated tax and Compensation Cess leviable under sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be provided in the notification issued by Department of Revenue, and such imports shall be subject to pre-import condition. 21. It is the insertion of the condition of pre-import in condition (xii) in Notification No.18/2015-Cus and paragraph 4.14 of the Foreign Trade Policy which hurts the petitioners and similarly situated persons the most. For the purpose of deciding the validity of condition (xii) of the above notification and the pre-import condition in paragraph 4.14 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lsewhere. 24. Now, in view of the condition of pre-import as interpreted by the Directorate of Revenue Intelligence and other revenue authorities, insofar as exemption from levy of integrated tax and GST compensation cess against an advance licence is concerned, the goods allowed under the authorisation are required to be imported first and such goods are required to be utilized for the purpose of manufacture of the finished goods, which are in turn exported under the Advance Authorisation. It has been asserted in the affidavit-in-reply of the Directorate of Revenue Intelligence (DRI) that pre-import condition means that the entire materials covered by the Advance Authorisation should invariably be imported first, either in entirety or in a phased manner, for use in the process of manufacture of the finished goods, which in turn would be exported, towards the said Advance Authorisation only. It is not necessary to import in totality, one is allowed to import in piecemeal, if need be. The only condition is that, the materials imported duty free under a specific Advance Authorisation has to be used for manufacture of the goods to be exported under the said Advance Authorisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( iii) In cases, where multiple input items are allowed to be imported under an Advance Authorisation, and out of a set of import items only a few are imported prior to commencement of export. Evidently, in the production of the export goods, except for the item already imported, the importer utilized materials other than the duty free materials imported under the subject Advance Authorisation. The other input materials are imported subsequently, which do not go into production of the finished goods, exported under the said Advance Authorisation. Therefore, pre-import condition is violated. ( iv) In some cases, preliminary imports are made prior to export. Subsequently exports are made in a scale which is not commensurate with the imports already made. Scrutiny of particulars of export clearly establishes the fact that the quantum of exports made is much more than the corresponding imports made during that period, establishing the fact that materials used for manufacture of the export goods were procured otherwise. Rest of the imports are made later and corresponding exports are either nil or far less. It is evident that the imported materials have not been utilized in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import condition are listed in Appendix 4-J or will be as indicated in Standard Input Output Norms (SION). ( iii) Import of drugs from unregistered sources shall have pre-import condition. 4.14: Details of Duties exempted . Imports under Advance Authorisation are exempted from payment of Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, Transition Product Specific Safeguard Duty, wherever applicable. Import against supplies covered under paragraph 7.02 (c), (d) and (g) of FTP will not be exempted from payment of applicable Anti-dumping Duty, Countervailing Duty, Safeguard Duty and Transition Product Specific Safeguard Duty, if any. However, imports under Advance Authorisation for physical exports are also exempt from whole of the integrated tax and Compensation Cess leviable under sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be provided in the notification issued by Department of Revenue, and such imports shall be subject to pre-import condition. 29. Thus, paragraph 4.13 is a provision which is specifically made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of which if the importer wants the benefit of exemption from the levy of integrated tax and GST compensation cess, the fact that the other levies are not subject to pre-import condition becomes immaterial inasmuch as the same input would be subject to the pre-import condition qua integrated tax and GST compensation cess which would, therefore, result in the input being subject to pre-import condition in respect of all the levies. 30. At this juncture, reference may be made to paragraph 9.8 of the affidavit-in-reply filed on behalf of the Directorate of Revenue Intelligence, which reads thus: 9.8 Present or the erstwhile Policy, has never had any provision for issuance of Advance Authorizations, compartmentalizing it into multiple sections, part of which may be compliant to a particular set of conditions and another part with a different set of conditions. Agreeing to the claim of considering part of the imports in compliance with pre-import condition, when it is admitted by the importer that pre-import condition has been violated in respect of an Advance Authorization, would require the Policy to create a new provision, to accommodate such diverse set of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsation cess, in respect of which there is no pre-import condition . Therefore, export in anticipation of Advance Authorisation as contemplated in paragraph 4.27 of the Handbook and the pre-import condition contained in paragraph 4.14 of the Foreign Trade Policy and condition (xii) of the exemption notification, cannot stand together. 33. Thus, by virtue of the amended paragraph 4.14 of the Foreign Trade Policy, even in case of inputs not falling within the ambit of paragraph 4.13, if such inputs have been imported against an Advance Authorisation, the same are subject to pre-import condition insofar as claim for exemption from the levy of integrated tax and GST compensation cess under sub-section (7) and sub-section (9) of section 3 of the Customs Tariff Act is concerned. In other words, all the raw materials imported against an advance licence are subject to the pre-import condition . Thus, while under the Foreign Trade Policy, vide paragraph 4.13 specific inputs have been subjected to the condition of pre-import considering the nature of such inputs, under paragraph 4.14 which merely provides for the details of duties exempted, all the raw materials imported under an Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payment of IGST/Compensation Cess on import of inputs. Therefore, the objective of the policy is to boost exports by facilitating trade. One of the means of facilitating such trade is to prevent cash blockage of exporters due to upfront payment of IGST/Compensation Cess on import of inputs. 36. The question that arises for consideration is whether the impugned pre-import condition in any manner furthers the objective of the Foreign Trade Development Act and the Foreign Trade Policy. From the facts as emerging from the record as discussed hereinabove, in view of the pre-import condition , it is not possible for the manufacturers-exporters to import duty free imports against an Advance Authorisations. Besides, considering the stand adopted by the Department of Revenue Intelligence in its affidavit-in-reply as referred to hereinabove, the policy has been interpreted very stringently by them in view whereof, if the condition of pre-import is not satisfied, the importer would not get any benefit under the Advance Authorisation, even in respect of levies which are not subject to pre-import condition . The consequence is that with the advent of the Goods and Services Tax regime ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of pre-import for availing the benefit of exemption from integrated tax and GST compensation cess leviable on material imported against an Advance Authorisation, which vindicates the stand of the petitioners. 38. Clearly therefore, the condition of pre-import militates against the Advance Authorisation Scheme and therefore, the impugned condition (xii) in Notification No.18/2015-Cus dated 1st April, 2015 introduced vide Notification No.79/2017 dated 13th October, 2017 as well as the amendment in paragraph 4.14 of the Foreign Trade Policy made vide Notification No.33/2015-2020 dated 13th October, 2017, to the extent the same imposes a pre-import condition in case of imports under Advance Authorisation for physical export for exemption from the whole of the integrated tax and GST compensation cess leviable under sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, do not meet with the test of reasonableness and are also not in consonance with the scheme of Advance Authorisation. For the reasons recorded hereinabove, this court respectfully does not agree with the view taken by the Madurai Bench of the Madras High Court in M/s Vedanta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption from IGST was given through the impugned notification in order to prevent cash blockage of exporters due to upfront payment of IGST on import of inputs etc. In case of replenishment imports after exports, the issue of cash blockage does not arise. Since exports have already taken place and the GST legislation provides for complete zerorating, extending GST exemption on replenishment imports would imply double benefit to the authorisation holder. 42. Thus, though paragraph 4.27 of Handbook of Procedures notified in exercise of powers under paragraph 1.03 of the Foreign Trade Policy, 2015-2020 clearly permits exports in anticipation of authorisation by endorsing the file number or authorisation number to establish co-relation of export/supplies with authorisation issued, the respondents want to treat such permissible imports made in anticipation of authorisation as replenishment, and though for the purpose of benefit of exemption from the other levies imposed under sections 3(1), 3(3) and 3(5) of the Customs Tariff Act for decades the procedure was permitted, and is permitted even now, for the purpose of exemption from levy of IGST and GST compensation cess, such imports ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in limiting the exercise of rights have no co-relation with the advent of GST regime. Same factors, parameters and considerations of in order to co-relate the goods or administrative convenience prevailed even under the Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods purchased prior to one year. 31. In the conclusion we hold that though the impugned provision does not make hostile discrimination between similarly situated persons, the same does impose a burden with retrospective effect without any justification. 45. Insofar as the contention regarding double benefit to the exporter is concerned, except for raising such contention, despite a pointed query by the court, the learned counsel for the respondents is not in a position to point out as to how the exporter gets any double benefit. 46. Insofar as the contention regarding maintainability of these writ petitions challenging a policy decision is concerned, it may be apposite to refer to the decision of the Supreme Court in Express Newspapers v. Union of India (supra), wherein the court proceeded on the assumption that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grievances of the petitioners, they would not be in a position to grant any relief as the notification cannot be given retrospective effect, and hence, it would not be possible for the respondents to grant the benefit of deletion of condition of pre-import retrospectively. It, therefore, appears that the Government, even if so deems fit, may not be in a position to grant the benefit given under the notification dated 10th January, 2019 retrospectively. The grievance of the petitioners for the period under consideration would, therefore, have to be addressed by this court. 50. For the foregoing reasons, the petitions succeed and are, accordingly, allowed. The pre-import condition contained in paragraph 4.14 of the Foreign Trade Policy, 2015-2020 inserted vide Notification No.33/2015-2020 dated 13.10.2017 and inserted vide clause (xii) in Notification No.18/2015-Cus vide Notification No.79/2017-Cus dated 13.10.2017, are hereby struck down as being ultra vires the Advance Authorisation Scheme as contained in the Foreign Trade Policy, 2015-2020 as well as the provisions of the Handbook of Procedures. Consequently, all proceedings initiated for violation of pre-import condit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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